Some investors do not see the appeal of Crocs‘multi-billion dollar deal to buy casual shoemaker Hey Dude.
But Crocs CEO Andrew Rees said the retailer sees an opportunity to expand the Hey Dude brand into new geographies – along the coasts of the United States and throughout the North. Crocs also hopes to grow its shoe portfolio beyond the best known rubber clogs while keeping up with the comfort trend, he said.
On Thursday morning, the retailer announced they plan to buy private footwear brand Hey Dude for $2.5 billion, in a cash-and-stock deal. The transaction is expected to close in the first quarter of next year and immediately add to revenue and earnings growth, it said.
But Crocs stock fell about 13% Thursday afternoon, on pace for its worst day since April 2020, as investors worried about the news.
“We think a great way to diversify and provide a little extra security for our investors is not to diversify away from Crocs’ iconic clogs, but to add a brand other has its own logo,” Ress said in an interview on CNBC’s “Power lunch. “” And that gives us, in our opinion, a tremendous amount of diversification and is a really compelling reason for us to buy the brand. “
He added of Hey Dude: “We think it has more potential, both in the US and globally.
Founded in Italy in 2008, Hey Dude runs more than 40% of its business online and is expected to bring in about $570 million in revenue by 2021, Crocs said. According to Ress, the brand’s revenue is predicted to be between $700 and $750 million by 2022.
In a research note sent to clients, Piper Sandler called Hey Dude “one of the fastest-growing brands” they’ve tracked as part of a two-year “Pick Up With Teens” survey. once a year. Hey Dude was the 8th most popular brand in the survey this past fall compared to last year’s 17th and 54th two years ago, it said.
Piper Sandler also said that Crocs stock was mispriced following the announcement. “We believe the concern is that investors are unfamiliar with the brand, worried about the sustainability of growth, and management has not reiterated guidance,” it said.
Crocs stock has had a big run in 2021, up about 93% so far. The company’s market capitalization is around $7.2 billion.
